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Protecting Your Residuals: A Contract Checklist

March 31, 2009

2 Min Read
Protecting Your Residuals: A Contract Checklist

By Neil Ende

Despite the perception that contracts are fixed, static documents, in reality, contract terms between a carrier and agent are the unique, case-by-case product of the negotiation between the parties. Put another way, contracts are similar to snowflakes in that no two are alike. In most cases, when addressing the issue of residual commissions, the best approach for the agent is to include provisional language that almost certainly isn’t there at the beginning of the negotiation phase.

When addressing the question of residual commissions, as a general matter, your agreement should include:

  1. The agent’s right to residual commissions for as long as the customer takes service from the carrier, and not be tied to any contingencies outside of the agent’s direct control.

  2. The agent’s right to residual commissions based on billed revenue if carrier is responsible for billing and collecting from customers.

  3. In the event the agent’s obligations include revenue and/or volume commitments, carrier commitments relating to its products, rates, quality of service and customer support.

  4. A tiered commission structure where agent receives a smaller commission rate (as opposed to nothing) in the event of agent’s failure to meet its revenue and/or volume requirements.

  5. The agent’s right to residual commissions or the agent’s right to move customers to another provider upon the carrier’s failure to pay residual commissions at the proper rate and time.

Because the agreement you execute with your service provider is central to determining whether you will survive in the market, it is impossible to overstate the importance of seeking expert legal advice from experienced telecom counsel when negotiating these agreements and to stand your ground on critical terms. The upfront investment necessary to obtain assistance with these matters will — in nearly all cases — pay dividends down the road that are well beyond your investment.

Neil S. Ende is founder and partner, and Greg Taylor is partner, with Technology Law Group LLC, a Washington, D.C.-based telecommunications law firm. Further information on this issue can be found at TLG’s blogsite.

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